Wednesday, July 14, 2010

The Bunny Bites Back

I had an interesting interview on MarketWatch Radio the other day. After years of pummeling, Playboy announced that its venerable founder, Hugh Hefner, was seriously considering taking his publicly-held company private once again. Hef had reason to be serious. After decades of mismanagement, beginning with his own daughter, Christie, at the helm, what could arguably be called one of the planet's most recognizable and potentially valuable brands has been decimated to a shadow of its former self.

It wasn't always that way. There was a time when Playboy was the gospel of Modern Western Man. Readers could look to the pages of the magazine to develop their tastes in music, fashion, lifestyle, alcohol, automobiles -- and yes, fine-looking women. Of course, it was the fine-looking women that grabbed most of the headlines, but the actual Playboy brand was far more than that.

What people tend to forget is that Playboy was originally launched to compete with the likes of Esquireand other gentlemen's magazines, most of which were outgrowths of young men's primers from east coast colleges. Knowing how to hold your fork or which wine is simply not served with fish was crucial to every aspiring young man's rank and reputation. Discerning the differences between 12 and 18 year old scotch was as important back then as an M.B.A. degree is today. Yet while magazines like Esquireprofessed to be "man at his best," Hefner was able to see what none of his competitors could:

All the other publications assumed that men at their best was the same after the second world war as it was before the war. And every one of them was wrong.

From the outset, Hugh Hefner knew that every generation from the 1950's would never look back or aspire to be what their fathers were. The post-war mass production economy had far fewer media channels than we have today, and its affluence -- for the very first time in world history -- afforded lower-class men a chance to move up on the status bar. All of which allowed Playboy to become the sole medium for young men to find what they were looking for.

Sure, a few bare-breasted babes helped increase circulation, but for decades, far more pages of Playboy were devoted to social discourse than sexual intercourse. It's no coincidence that the series of James Bond movies found huge success after the success of Playboy; for all intents and purposes, James Bondwas the quintessential Playboy man who knew all the right moves in all the right places.

There was a time, in fact, when a Playboy subscriber carried a Key Card, allowing him access to a number of Playboy clubs across the country. Each club featured a bar, restaurant and well-packed Playboy bunny waitresses that understood -- and enjoyed -- their place in the Playboy world.

It was all good until the 1970's, when political correctness and gross brand mismanagement hit the bunny like a sledgehammer. The rise of feminism unwittingly took Playboy as its prisoner, preferring to project the brand as offensive to women, when in fact, Playboy was at the forefront of most, if not all, causes of sexual freedom and equality. However, Playboy took less of a hit for its sexual content than it did for its celebration of masculinity, which media pundits of the time found to be oppressive, an extension of their all-thing-white-and-male-are-part-of-the-problem mentality. To be a man, all of a sudden, was not a good thing. This is the time in which the Emasculation of America began.

Playboy continued its downward spiral when Hefner's less-than-intelligent daughter, Christie, took the helm. Among Christie's colossal catalogue of ineptitudes was her complete and total ignorance of the Playboy brand, which she understood to be less about men and more about sex. As a result, she allowed the brand to be consumed in the now famous "pink wars" where magazines like Penthouse battled on the newsstands to see which publication could expose more female genitalia without getting arrested.

Throughout her tenure, Christie -- like so many denial-driven CEO's -- believed that the bunny could never die. She had no idea how to nurture it back to health and watched the brand disintegrate from her glassed-in office in her ivory tower. Playboy finally dumped her, but not before a huge amount of damage had been done. Playboy stock, once a high flyer, traded as low as $2 per share in early 2010.

Which is exactly when I bought it.

I loaded up on Playboy stock because it fit my financial model: I buy strong brands, figuring that someone, someplace knows an under-valued brand when they see it. Fortunately, Hugh Hefner is still alive to see it, too. His announcement to take the company private doubled the stock's value in less than two hours. With any luck, he'll attract the right management this time and restore the Playboy brand to what it is and always has been: